Guest Post: Holding Real Estate Property in IRA

August 1, 2020
Posted In: Industry Voices

A growing number of investors within our network are considering investing in real estate via a self-directed IRA (SDIRA). For some added info on how to set up an IRA and best practices for real estate investing through a SDIRA, we sought the perspective of Rick Pendykoski, the owner of Self Directed Retirement Plans LLC, an Arizona-based retirement planning firm

Intro – Holding Real Estate Property in IRA

You can buy real estate with IRA retirement money. But, not just any IRA will do when it comes to real estate investing. You need to open a self-directed IRA account.

A self-directed IRA doesn’t restrict you to the stock market and gives you the freedom to invest in a wide variety of investment vehicles, including real estate, private equity companies, precious metals, and many more IRS-approved investment options.

A number of specialized firms offer self-directed IRAs, and the basic concept is that you get to decide and direct the kinds of investments that will be held in the account.

However, before you get started, there are a few things you need to consider. Take a look:

1. Figure out whether real estate investing with your IRA funds is right for you.

Self-directed IRAs are meant for investing in assets that produce income to fund your retirement. It’s not an account for holding assets that do not appreciate in value every year. And it’s definitely not for passive investors. This IRA places a lot of responsibility on you (the account holder).

You are the one making big financial decisions about what properties to buy, what rent to charge, for how long to hold them, when to sell, how to manage, etc. This means that you need to be actively involved in managing your assets. You should also have enough experience and expertise to make smart financial decisions.

2. Consider the structure of your self-directed IRA.

Structuring your portfolio is important. Your investment portfolio has to be diverse enough to withstand the ups and downs of the various markets.

3. Choose a custodian and set up an account.

For Self-directed IRAs, a licensed custodian completes all transactions on behalf of the account owner. Choose an IRA custodian that allows you to make the type of investments you have in mind, which may include the stock market as well as alternative investments.

Do your due diligence while choosing an IRA custodian. Read online reviews from customers, list down their pros and cons, and compare features. Do the research you need to do to avoid hassles later on.

4. Transfer your IRA funds to your self-directed IRA account.

Once your self-directed IRA account is set up, your custodian will give you all the information you need to securely and legally transfer your qualified funds from your retirement saving account into your self-directed IRA.

A thing to remember here is that your IRA and not you are the owner of the property. And your custodian acts as a trustee of your IRA and executes transactions as per your instructions.

5. The Tax Benefits.

One of the main benefits of investing in real estate is that you can claim depreciation and get a current tax deduction. However, you cannot claim loss, deductions, or depreciation inside your IRA.

For a traditional IRA, you must take required minimum distributions once you reach 70 ½. Even after buying real estate using IRA funds, you should have enough money in your IRA account to withdraw the RMD, or else it could put you in trouble.

6. Rules to follow:

  • You can’t mortgage the property.
  • You can’t work or employ yourself or your family to work on the property. You need to hire an independent person to carry out the repairs.
  • If your property operates at a loss, you cannot claim depreciation nor get the tax breaks.
  • All expenses associated with the property that you incur must be paid out of the IRA. The income related to the property, such as rent, has to be deposited into the IRA. You need to have money in your IRA to cover major property expenses; otherwise, it could put you in a bad situation.
  • You cannot use the property for any personal benefit. You cannot live in it or use it for any personal reason. The real estate is owned by your IRA, and it has to be used only for investment purposes.

Disqualified people as defined by the IRS:

  • You (the account owner)
  • Your spouse
  • The IRA beneficiary
  • Your lineal descendants/ascendants and their spouses
  • A director, officer, partner, or more of 10% shareholder
  • An estate, corporation, partnership, etc. where you own at least 50% of the voting stock (directly or indirectly)
  • Fiduciaries and plan service providers and fiduciaries (including custodians, advisors, and administrators)

Prohibited transactions as defined by the IRS:

  • Sale, leasing, or exchange of property between a disqualified person and an IRA
  • Furnishing goods, facilities, or services between a disqualified person and an IRA
  • Extending cash loan or credit between a disqualified person and an IRA
  • Use of the property for personal benefit by a disqualified person or transfer of IRA income or assets to a disqualified person

Potential Consequences

Your retirement account will be disqualified as of January 1 of the year the prohibited transaction occurred. On the first day of that year, the IRA is treated as distributing all the assets to the owner at a fair market value price, and this is likely to attract hefty penalties and taxes.

Author Bio:

Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last 10 years has turned his focus to self-directed accounts and alternative investments. Rick regularly posts helpful tips and articles on his blog at SD Retirement as well as, SAP, MoneyForLunch, BiggerPockets, SocialMediaToday and NuWireInvestor. If you need help and guidance with traditional or alternative investments, email him at For questions related to investing in EquityMultiple’s offerings via a SDIRA, please contact Investor Relations at

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